Olivine suspends operations, owes foreign supplies US$11 million

Olivine Industries, the maker of household consumer brands such as Buttercup margarine and Jade soap, has suspended operations after foreign creditors cut off raw material suppliers over a US$11 million debt.

The shutdown of a firm of Olivine’s scale drives home the
depth of the foreign currency crisis, adding pressure on President Emmerson
Mnangagwa’s administration.

Olivine is 65% owned by Surface Wilmar, and 35% by the
Government.

“The company has struggled to restart its manufacturing
operations in January 2019 for lack of imported raw materials,” Olivine said in
a statement Friday.

“Unfortunately, production during the remainder of 2018
struggled at low capacity due to shortages of raw materials procured through
letters of credit established before 30 September 2018 and on foreign supplier
credit lines which were last serviced in July 2018. The company currently owes
US$11 million to its foreign suppliers who have since cut off supplies until
the arrears are paid. The company awaits foreign currency allocations, and is
sitting with sufficient RTGS account balances to pay off the foreign credits in
full and procure further raw materials.”

Olivine’s move came just a day after the Confederation of
Zimbabwe Industries, which represents the bulk of the country’s largest
industries, warned that many of its members were down to just a month’s supply
of raw materials.

Zimbabwe has been failing to meet its forex requirements,
with a backlog for foreign payments now estimated at over US$700 million.

Surface Wilmar, a joint venture between Singapore
agribusiness giant Wilmar and Midex Global of India, bought into Olivine
Industries in 2015. The investment revived the company, which had virtually
collapsed, bringing back household brands that had disappeared from store
shelves; Jade, Perfection soap and Olivine baked beans, among others.

However, in September, the company warned that foreign
currency shortages had become a serious threat to operations.

Surface Wilmar invested US$15 million when it entered the
market in 2015, and had plans to invest a further US$73 million into the
country. But its shareholders have had to push back on those plans due to
deepening forex shortages, Surface Wilmar said in September.

“However, we are still facing huge challenges in
availability of forex and low oilseed production, which is not only pulling
down our existing investment, but also quite concerning for our shareholders,
both foreign and local. They are discouraged from further investment, as the
returns are hampered by insufficient foreign currency allocations to support
importation of raw materials and new capital equipment,” the company said then.

Having government as a shareholder in the business has not helped Olivine access forex. According to the company’s statement on Friday, “efforts to engage government especially the shareholder, the Ministry of Finance, have not had any resolution”.

In November last year, on a tour of Surface Wilmar’s Chitungwiza oil factory, Finance Minister Mthuli Ncube said he planned to sell-off part of Government’s stake in Olivine to a private investor to allow the company to raise fresh capital.

At a meeting with youth groups earlier on Friday, Ncube
admitted that the forex crisis was keeping investors away and bleeding
industry.

“Really the issue at the moment is the shortage of foreign currency, for our corporates. So, for me, the silver bullet is the currency reform; if the corporates can access foreign currency whenever they need to, a lot will change,” he said in Harare. “We are fully aware that if investors cannot take their money out, they are not going to invest in the first place.”